Corporate Governance

Autogrill’s Corporate Governance system is based on the principles given in the Code of Conduct for Listed Companies as proposed by the Corporate Governance Committee of Borsa Italiana S.p.A., and more generally on international best practices, adapted to take account of the Company’s individual characteristics and business.

Autogrill is trying to broaden the traditional concept and overcome the limitations which characterize it by focusing on all of the corporation’s stakeholders which may in various way influence governance processes. Corporate governance in Autogrill is an integral aspect of its people-oriented culture.

Autogrill’s sustainability approach has strengthened its commitment to develop and implement an active, innovative and integrated managerial logic regarding the various risks and aspects of the business. Developing a correct attitude to competing efficiently in different markets requires adopting management and monitoring models which are strongly aware of the importance which the corporation’s various stakeholders have in each context.

This approach was endorsed by the “King Report III” on corporate governance, published in 2009, which put sustainability at the centre of the governance system. According to the report’s author, South African Mervyn King 1, the capacity to create value for shareholders will become increasingly tied to companies’ ethical reputations. The big multinationals understood this but above all realized that the new approach can generate new business opportunities. Not only: it’s also important that the whole economy understands that to manage a real increase in costs it’s necessary to find ways to produce more with less resources, or resort to more economical and sustainable energy sources. There is also the fact that consumers now know the difference between an eco-friendly product and one that isn’t and future generations will grow up more environmentally conscious than ever. King therefore believes it’s important to “integrate sustainability into business strategy. But to do that requires leadership capacity, cultural change in top managements and communication of the approach to everyone in an enterprise. Active engagement of employees also favours a more ethical and loyal attitude towards employers and reduces the propensity to corruption. This is why corporate citizenship must be a co-objective of the enterprise”.

Broadened governance drivers

drivers

1 Mervyn King is professor at College of Economic and Management Sciences at University of South Africa (Pretoria). He is also Chairman of Global Reporting Initiative and consultant for World Bank and United Nations for corporate governance and companies sustainability policy. The abstracts are from the interview made by “Internal Audit” magazine.

Ethical principles

In its relationships with stakeholders, Autogrill bases itself on the principles of loyalty, legality and fairness enunciated in the Code of Ethics, which was approved by the board of directors in November 2002 and subsequently extended to all European subsidiaries and brought into line with that of the American division HMSHost. The Code adopts the highest international standards (International Labour Organization, Global Compact) to ensure that there is no use of child labour or forced labour in any Group operations in any geographical region.

Autogrill is convinced that to continue growing in a global context organizations must abandon the traditional business management model that only considers shareholders’ needs (shareholder governance). To survive and be successful, companies must gain and maintain competitive edge on the market. It is therefore indispensable to combine legal compliance with a management approach that see the demands and interests of all stakeholders alongside the other and more traditional aspects of business and risk management.

Organizations are tending to evolve towards what is called Sustainable Governance, a reconciliation between business objective-based governance and control and a philosophy that privileges transparent dialogue with stakeholders and aims to maximize value for the company.

This is why the Group decided to organize a pilot online training course on compliance with Decree Law 231/2001 and on sustainability instead of the surveys Autogrill carried out in previous years to check employees’ knowledge of the Ethical Code, the principles of social responsibility and the organization model pursuant to Decree Law 231/2001.

The course has two aims: to raise awareness amongst the Autogrill S.p.A. employees in the sample of the law on administrative liability to which our Company is subject and improve knowledge of sustainability issues. The training was based on two modules and at the end of each employees were assessed (by questionnaire). The course started on 14th December 2009 and closed on 18th January 2010.

Overall, the participants showed excellent understanding of issues relating to compliance with Law 231. The response was very clear on who exactly the model applies to, the tasks of the supervisory body, offences of corruption involving the public administration and computer crime. There was sufficient understanding of the main condition rendering an offence committed in the company punishable under Decree Law 231/2001, the composition of the supervisory body and report forms and governance offences. Understanding of sustainability themes was excellent. The sample of employees had no difficulty with the definitions of sustainability and stakeholder, ecological footprint or human rights, or the questions on consumer trends, the Sustainability Report, the “Destinazione Ambiente” project or innovation in Autogrill points of sale. There was also a positive response on the meaning of the Afuture logo, the implications of the restyling of Spizzico brand packaging, the meaning of GRI and corporate functions involved in sustainability activities. The objective for 2010 is to extend this e-learning to other employees in Italy and abroad and add content to the modules regarding new developments in the organization model and sustainability themes.

As every year, surveys are conducted in the USA, Canada and the Pacific area to assess knowledge of the Code of Ethics and laws and regulations applied internally.

Further, to ensure equity in treatment and relations, the American business has a 24-hour Ethics Hotline for the purpose of reporting concerns or policy breaches (even anonymously). In 2009, there were 635 calls and an analysis of the report received was carried out on each of them.

Summary of 2009 Corporate Governance and Ownership Report

Autogrill drew up its Corporate Governance and Ownership Report in line with the new art. 123-bis, Consolidated Finance Acts. Summarized below, it is available in a full version on the Group’s web site (www.autogrill.com) and in hardcopy at Company offices.

Autogrill’s corporate organization is the traditional one:


I. General meeting of the Shareholders;
II. Board of Directors, which elects a Chairman and a CEO;
III. Board of Statutory Auditors.

Alongside these corporate bodies are the external audit firm, the manager charged with preparing the Company’s financial reports, the Internal Control and Corporate Governance Committee, the Human Resources Committee, the Officer in charge of internal control and the Supervisory Body provided for by Decree Law 231/2001.

corporate governance

 

Board of Directors

The board of directors is made up of a chief executive officer (CEO) and 11 non-executive directors. The current board of directors was elected by the shareholders’ meeting held on 23 April 2008, by list vote, pursuant to §10 of the by-laws, and will remain in office until approval of the 2010 financial statements.

One list was presented, by the majority shareholder Schematrentaquattro S.r.l., which on the date of the shareholders’ meeting held 58.717% of the share capital. With votes representing 66.4% of the share capital, all the candidates in the list presented were elected and are still in office. The Board consists of twelve members of whom one is an executive director – Gianmario Tondato Da Ruos, CEO – and 11 are non-executive: Gilberto Benetton (Chairman), Alessandro Benetton, Giorgio Brunetti, Antonio Bulgheroni, Arnaldo Camuffo, Claudio Costamagna, Francesco Giavazzi, Javier Gómez-Navarro, Alfredo Malguzzi, Gianni Mion and Paolo Roverato.

Board of Directors

Composition: 12 members of whom one executive and six independent
Meetings held in 2009: 10

On 10 November 2009, a Board meeting attended by all its members carried out the periodical assessment of the size, composition and operation of the board of directors and its committees, as required by the Corporate Governance Code.

During the meeting, the directors discussed the content of a summary of the assessment process, which, as in previous years, involved the filling in of questionnaires by the directors and subsequent processing and analysis by an independent party.

The assessment led to a judgement of overall and unanimous satisfaction with the efficiency of the board of directors and its Committees. Most of the suggestions concerned the advisability of allocating more time at meetings to discussion of material questions than to matters of compliance. It was also pointed out that the directors needed more knowledge of the Company as a whole (also internationally) and of its types of business.

Capital increase and authorization to trade in treasury shares
The shareholders’ meeting on 21 April 2009 authorized the acquisition and subsequent disposal of up to 12,720,000 treasury shares (5% of the share capital) following revocation of the previous authorization voted by the shareholders on 23rd April 2008. The authorization applies for 18 months from 21 April 2009. Trading must be on regulated markets and in accordance with applicable law. Acquisitions must be made within minimum and maximum limits with respect to the stock market price determined as per the criteria indicated in the shareholders’ resolution. At 31 December 2009, the Company held a total of 125,141 treasury shares, being around 0.049% of the share capital.

Independent directors
The Board of Directors annually assesses the independence of each of its members, partly on the basis of information supplied by the directors themselves, and informs the market of its assessment. Independent directors serving on the Board and its Committees is an appropriate way of safeguarding the interests of all stakeholders. The independent directors met in a plenary session chaired by the Lead Independent Director, in the absence of the other directors, to discuss the working of the Board of Directors and governance issues.
On 19 December 2010, the board of statutory auditors verified that the criteria and procedures adopted by the Board to assess the independence of its members were being properly applied.

Board of Directors’ committees
In line with the recommendations of the Corporate Governance Code, the board of directors in 2001 set up a Remuneration Committee, which changed its name to Human Resources Committee in 2008. In 2002 it created an Internal Control Committee, which became known as the Internal Control and Corporate Governance Committee in 2006.
Regarding the Corporate Governance Code’s recommendation to consider setting up a committee for the appointment of members of the Board of Directors, the Board did not see fit to set up such a committee.

Human Resources Committee

The Company set up a Remuneration Committee in 2001 and changed its name to Human Resources Committee, comprising non-executive and mostly independent directors, in 2008.

In line with the recommendations of the Corporate Governance Code, the Committee is made up of nonexecutives directors, most of whom are independent. Its current members, appointed by the board of directors on 23 April 2008, are non-executive directors Alfredo Malguzzi (independent director and Committee chair), independent directors Antonio Bulgheroni, Arnaldo Camuffo and Claudio Costamagna and director Gianni Mion. The Committee met 11 times in 2009. The average duration of each meeting was 2.15 hours. Eight meetings of the Committee are scheduled for 2010, two of which were held on 2 and 26 February 2010.

 

Internal Control and Corporate Governance Committee

The Company has had an Internal Control Committee since 2002. Made up of non-executive directors, a majority of whom are independent, the Committee’s function is to provide advice and take action on problems relating the control of corporate operations.

On 23 April 2008, the board of directors appointed the following non-executive directors to the Internal Control and Corporate Governance Committee: Giorgio Brunetti (independent director), Alfredo Malguzzi (independent director) and Paolo Roverato, and appointed Giorgio Brunetti as its chair.

The Internal Control and Corporate Governance Committee met eight times in 2009 (average length meetings: about 2.5 hours). The Committee has so far met four times in 2010.

 

Supervisory Body

Meeting on 9 July 2003, Autogrill’s board of directors appointed a Supervisory Body (the “O.D.V.”) to oversee the working of and compliance with the Organization Model, pursuant to decree law 231/2001 . It currently comprises an economics and finance expert, the head of Internal Auditing and the director of Group Organization Development.

The O.D.V. met four times in 2009 and reported to the board of directors and the statutory auditors halfyearly on the level of implementation of and compliance with the Model.

On 20 February 2009, following a resolution by the board of directors, the Special Part of the Model entitled “Offences against workplace health and safety” was updated in response to the introduction of decree law 81/08 “Consolidated Workplace Health and Safety Acts”.

Over the year, risk analysis continued on areas deemed sensitive in respect of the offences of handling stolen goods, money laundering and use of goods of illicit origin (art 25-octies, decree law 231/2001) and computer crime and illegal processing of data (art. 24-bis decree law 231/2001) and such offences were added to the Special Parts of the Model approved by resolution of the Board on 16 December 2009.

Box:Internal control system

Risk management

The Company and the Group are exposed to external risks and uncertainties relating to the general macro-economic context or to specific business sectors, not to mention risks deriving from strategic choices or internal management risks.

With the exception of financial and reporting risks, which are managed or at least closely monitored by centralized functions, risk detection and containment in 2009 was systematically carried out by the responsible officer in each unit of the Group, with the objective of containing the residual risk per single unit within acceptable levels.

Updating of the Group’s risk matrix in 2009 did not identify any new risks with respect to those considered in 2008. The relative stabilization of the macro-economic situation, making trends in external non-controllable variables more predictable, and above all greater tolerance of risk on the part of the Group (thanks to the “deleverage” achieved over the course of the year) caused a significant reduction in the overall burden of risk and a change in relative priority levels.

Main risks and uncertainties to which Autogrill S.p.A. and the Group are exposed

main risks

Reduction in traffic flows
Any exogenous or endogenous variable that causes a reduction in traffic flows through infrastructure where the Group’s Food & Beverage, Travel Retail & Duty-Free and Flight businesses operate is a threat to generation of value.

Factors that are exogenous and therefore not controllable and which may affect traffic flows and travellers’ propensity to buy include the macro-economic trend and oil prices and, in general, the cost of transport.

The impact of such risks is mainly economic, entailing reduction in sales and profitability.

Strategic factors that help mitigate this type of risk include:

  • diversification of the channels (airports, motorways, railway stations) in which the three businesses operate, given that trends in the above mentioned exogenous or endogenous variables affect channels in different ways;
  • the Group’s presence in different geographical regions, meaning that exposure to macro-economic trends is not uniform, given differing states of economic development and consumer behaviour from region to region.

Internal factors normally used by the Group to counter recession or mitigate the impact of concentration of business channels or geographical regions exposed to recession include:

  • focusing on the profitability of sales by containing operating costs (without compromising service quality) and adjusting the offering;
  • focusing on competitive pricing and the appeal of the offering to adapt to customers’ propensity to buy in a recession;
  • adjusting development investments to contain the impact on net cash flow generation.

Reputation
Loss of reputation in the eyes of landlords, whether through inability to meet contractual commitments or a tarnishing of the Group’s image by deterioration of the quality of service, is a significant risk for maintaining existing contracts and winning new ones.

To manage that risk, the Group constantly monitors service quality to the landlord (in terms of quantitative and qualitative parameters defined in contracts) and to customers (perceived customer satisfaction and product safety). This is done by constant monitoring of procedures and processes by internal functions and external organizations and by systematic reviewing of procedures and processes to maintain high standards of service efficiency and efficacy and personnel safety.

In Italy, the fact that many travellers use the Group’s name to refer to highway rest stops in general (“... let’s stop at the next Autogrill”) exposes Autogrill’s Food & Beverage operations in this channel to reputation risk caused indirectly by any shortcomings on the part of competitors.

Suitable brand protection measures are taken in Italy if Autogrill is wrongly alleged to have caused disservice to customers.

Change in consumer spending behaviour
A change in consumer spending behaviour can lead to customer dissatisfaction if the Group does not realise and react in time, leading to a loss of reputation and clientele.

Autogrill’s extensive portfolio of brands and commercial formulas mitigates the risk of not adequately catering to the preferences or expectations of various customer groups.

In developing its concepts and offerings, Autogrill takes care to stay flexible enough to respond to changes in consumer spending behaviour, which it monitors through customer satisfaction surveys, “mystery clients” and market research.

Economics of concession contracts
Food & Beverage and Travel Retail & Duty-Free business is mostly under long-term contracts put out to tender by holders of concessions for the management of infrastructure (airports, motorways). Over the years, there has been a gradual and marked increase in concession fees and a greater transfer of risk to the commercial services operator, though generally accompanied by stricter definition of service levels.

The intrinsic risk here is considerable because adjudication of contracts at insufficiently favourable conditions or errors in forecasting levels of business and thus of expected profitability in each location under concession may expose the Group to significant longterm loss of profitability.

In this context, the Group has consolidated experience and best practice in estimating the profitability of contracts and in negotiating terms, enabling it to limit the risk of errors in profitability estimates and avoid the risk of inadequate flexibility in economic conditions over the duration of long-term contracts. The strong focus of profitability tends in any case to preclude bidding for concessions not deemed particularly remunerative.

Further, the Group is able to counter the tendency towards higher fees by formulating value propositions that involve long-term partnership with landlords (by virtue of the Group’s excellent reputation) and the development of offerings that maximize the overall profitability of contracts.

Employee risks
The cost of labour is a significant production factor for the two main business sectors, Food & Beverage and Travel Retail & Duty-Free. The need to maintain service standards acceptable to customers and landlords and the complexity of international labour laws limit the flexibility of HR management.

Major increases in unit labour costs or more stringent welfare regulations can have a significant impact on the Group’s profitability.

One of the Group’s top priorities is to maintain a constructive dialogue with personnel and trade unions to ensure that productivity goals are met while assuming full social responsibility for workplace safety and employment levels, also in periods of recession.

This risk is further mitigated by constant updating of processes and management procedures in order to make more efficient use of labour, increase flexibility and reduce occupational hazards.

Legal compliance
The Group’s business sectors are subject to a high degree of regulation regarding management of operations and customer and personnel safety, in terms of both safeguarding people and product quality. Failure to comply with specific regulations carries the risk not only of litigation but also of loss of reputation in the eyes of customers and landlords, and therefore the risk of losing existing contracts or being excluded from bidding for new ones.

To mitigate this risk, the Group’s internal functions, assisted by experts, constantly monitor legislational developments so that processes and procedures can be suitably adjusted and personnel training can be organized in time to implement operational changes. Similarly important is the ongoing monitoring and auditing of quality of service with respect to contractual and legal requirements.